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Why You Should Say No to Retail Store Credit Cards

If you’ve been shopping in a retail store lately, you might have been given the opportunity to sign up for a store card. Having the chance to save 10% (this is just an example figure as the real percentage could be higher or lower depending on the store) on your purchases that day, and in the future it might look good on paper. But, you need to remember that store cards are just another form of credit, and you’ll be getting into debt by signing up for one. If that’s not enough to put you off, here are a few more reasons why you should stay away from store cards.

High interest rates

Most of us are aware of the huge interest rates attached to some credit cards, but did you know that the situation with store cards can be even worse? A typical interest rate for a store card can be anything in the 20% to 30% region, and some cards can be even higher than this. With interest rates like this, it won’t be long before your “discount” is canceled out by interest charges and your so-called bargain turns into a nightmare.

Short grace periods

Some store cards have a very short grace period before interest starts being applied, so you may not get much chance to pay off the full balance before you’ll have big interest added on top.

Low minimum payments

The minimum payments for store cards is often extremely small, so you can expect to be paying off the balance for many years to come if you’re planning on only paying the minimum each month. For each month that your balance rolls over, you’ve also got the high interest charges to think about too.

Late payment penalties

Some store cards claim to be 0% interest, but this can go straight out of the window if you fail to pay the full balance in the specified time frame. You’ll often find that the 0% interest is waived, and you’re charged the normal interest rate. This makes your purchase much more costly than if you’d used a credit card, especially if your regular credit card is of the 0% variety and the higher interest means that it’ll take longer to pay off too.

The impact on your credit score

Store cards can do major damage to your credit score, especially if you apply for more than one in a short space of time. Many people open store card accounts without realizing it will be treated the same as if you’d applied for another credit card. Your credit score will take a hit if you’ve got too many open lines of credit.

When is it good to take out store cards?

Some store cards allow you to pay the balance off immediately after you make a purchase at the register. In this case, you can rack up the benefits of the card and use it like cash. Store cards are a huge revenue stream for retailers, and that’s why they try to entice you with discounts for signing up and initial low interest rates. But, don’t be fooled. These tactics are there to get you signed up in hopes that you start carrying a balance and paying interest on the card.

Store card offers may seem like a good way to save money, but this tends not to be the case if you don’t pay off the full balance at the first time of asking. The high-interest charges can quickly swallow up your initial discount, and the fact that they can be much higher than the average credit card means that paying cash at your favorite clothing store is often the best way to shop.

Sally is a UK-based freelance writer. As well as personal finance, she also writes on health & beauty and lifestyle topics. When she's not writing, she enjoys reading, shopping, hanging out with friends and generally making the most of her downtime!

Comments

I find that it is SO tempting to open the card to take advantage of the discount, especially around the holidays when I am doing MAJOR shopping! You bring out several good points to help me feel more confident when I say no!

I’m always tempted by the discount and sometimes they have discounts throughout the year. However, I’m worried I’ll forget I opened it and then have a late fee, negating any savings I may have received.

I have the same concerns. Right now, I have two credit cards and every once in a while, I would forget to pay them on time. If I were to sign up for all these store credit cards, I would likely rack up big fines here and there, On the other hand, my sister pretty much has store credit cards for all those retail stores that she goes most often. Since she is very organized and meticulous, she has no problem keeping track of all the credit card bills.

I’ve noticed that some particular retailers REALLY push their store cards everytime I check out Target. Kind of annoying, especially if I’m only spending $5. I could have saved $0.50! And then taken a big hit on my credit score. Sure, sign me up! >:p

Heheh, that’s true. Every time I go to Macy’s, the store clerk always ask me if I want to save money by signing up for a store credit card. If I shop there often enough, I might get one. But right now I only go there less than 5 times a year, so my answer is ” no, thanks.”

I have done extensive research on credit in the past 2 years. There are so many variables when it comes to credit. It will take to long for me to explain all the different circumstances and criterias when it comes to applying for credit cards.

But in this blog, I will list the benefits of store credit cards considering carrying little to no balance.

1) Builds relationships with creditors
2) Easier to get than major credit cards
3) Rewards! Considering paying balance in full
4) Great way to establish credit or to rebuild credit
5) Also, it’s a great way to raise credit scores quick
6) Beefs up credit file

I found out that this biggest and most important criteria to get approved for credit or credits cards is relationships with creditors.

A) 35% of credit scores is credit utilization.
Which is how much of available credit is being used.

Store cards with raised your available credit and reduce your credit utilization ratio.
Hence, it will have a tremendous impact on your score, because this is the highest category in determining credit scores.

B) 30% of credit scores is on time payments which also has a high impact on determining credit scores.The more on time payments made increases credit scores. Also, this will establish a positive payment history. Which has a impact for credit approval.

C) 10% of credit scores is a mix of different types of credit on file. Examples: revolving, installment, mortgage, personal loan. Having store credit cards helps diversify a mix of credit. Which has a moderate impact on credit scores.

Add those 3 up, that is 75% in determining credit scores.

Negative: 15% is age of credit and 10% is inquires. Which I see little impact on credit score.

Using a store credit card responsible can raise credit limit, help lowering credit utilization ratio. Creditors for store credit cards usually gives generous credit limit and credit limits increases with positive payments history. Once in the door, now it will be easier to get a co branded credit card.

I am a big fan of Synchrony and Comenity Bank! They report to all 3 credit bureaus.

Both banks carry co branded credit cards. This means they partner with major creditors like Chase, Bank of America, American Express, Barclay, Capital One and etc.

Having a co branded credit cards backed by major creditors helps build relationships with the major creditors. Now this means, with positive payments history and relationships with major creditors will increase the ability for approval from major credit card companies. Like I stated above, the number 1 factor for approval of credit is relationships. I can list more benefits but I will stop here.

Here is the greatest misconception about credit approval and credits scores!

INQUIRES!!!

The more inquires accumulated will lower credit scores every time applying for credit. Also, it makes a person look desperate lowering the odds for credit approval In my research, I found out for the most part that this is the biggest misconception blogged about credit. It has a little truth but it is far from the truth.

Inquiries have very little impact on credit scores and only for a short time.
Heres the deal, inquires account for 10% of credit scores. Once that category is maxed out, it will only impact 10% of credit scores. Meaning, credit scores will not drop every time applying for credit. A person can not loose more than 10%.

The more inquires makes a person look desperate lowering approval odds. Little truth but far from the truth.

Relationships with creditors has the highest impact to obtain credit. Inquires places a low and small impact for credit approval.

The second biggest impact to obtain credit is how credit is being used. Which is credit utilization. Creditors are more interested in how credit is being used more than how much credit is available, Creditors are concern very little how much credit is available. They are more concern how much debt is accumulated and being when deciding for credit approval.

With all this being said, I am not concern about inquires.

In about 2 years, I went from credit scores below 600 fico to now almost 800 fico.

Some people collect baseball cards. I collect credit cards as a hobby. Actually, I am a credit holic.

In a little 2 years, I accumulated over 100 credit cards. My goal was to reach a hundred by the end of this year but I may reach 150 or most likely over 200 credit cards,

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